INVESTMENT MERIT

Turnaround after 4 years of losses.  GHLS was initially making losses from 2008 to 2011. However, in 2012, it started to turn around with a net profit (NP) of RM4.4m. This was following the emergence of a new group of management/shareholders in end-2010, which led to a progressive implementation of strategy changes such as the divestment of its loss-making China subsidiaries and the acquisition of COD, a software solutions provider for financial institutions in Thailand. This has led further to the group recording NP of RM2m (surging 80% YoY) in its recent 1Q13 results, which is already half of its FY12 full-year earnings. This was on the back of a +42% YoY rise in the revenue with an improved EBITDA margin of 16.2% from 14.2% in 1Q12.

E-payment market is lucrative. GHLS’ earnings could continue to see further uptrend momentum with its continued penetration into the low usage of credit card/debit card and loyalty porgrammes in Malaysia, Thailand and Philippines. The ratios of credit card transactions-to-population in Thailand, Philippines and Malaysia stood at only 5.8x, 1.1x and 11.2x respectively compared to Singapore’s ratio of 46.3x. This implies ample room for growth for GHLS given its exposure in these countries.

Growth to ride on Government’s programme.  Of noteworthy is that one the 10 EPPs identified under the government’s ETP i.e. EPP 4 (which emphasises on creating an integrated payment ecosystem), could give an edge to GHLS’ Malaysian business. As Malaysia aspires to become a chequeless economy and reduce its dependency on cash transactions to 63%, from currently c.91%, of the transaction frequency in 2020, this will encourage E-payment transactions, which is estimated to jump by 10-fold from 1.2b to 12.0b transactions per annum. This would certainly benefit GHL as the leading epayment solution provider in Malaysia. 

Fair value at RM0.46.  We believe the group could achieve our FY13 NP projection of RM7.8m judging from its decent NP of RM2m in 1Q13 and the sustainable revenue growth in its shared and solution services. We value the stock at RM0.46/share @ 7.0x FY14 PER, which is at a 25% discount to the FBM Small Capital Index PER of 9.3x given its relatively small market cap and illiquidity concerns. We believe the stock has good potentials given its relatively cheap valuation and strong earnings prospect. The stock is also trading at an undemanding valuation of 5.0x forward PER now compared to its regional peers’ PER of 15.6x.

SWOT ANALYSIS

Strength: Multiple revenue options within one value flow.

Weaknesses: Low switching costs for merchants and banks.

Opportunities: Growing adoption of electronic payments.

Threats: Changes in economic and social conditions

TECHNICALS

Comments: GHLS is in a side ways trading range at the moment while the RSI and Stochastic remain fragile. Only a successful breakout above RM0.330 would  pave way for further move towards RM0.345 next.

BUSINESS OVERVIEW

GHL Systems Bhd (GHLS) is a leading payment solutions provider in the region, deploying world-class payment infrastructure, technology and services. The group provides integrated end-to-end payment solutions encompassing physical and virtual payments on sale and rental basis, including Electronic Data Capture (EDC) terminals compliant to the Europay-Mastercard-Visa platform, contactless readers, network access routers and online payment gateways. With a full suite of payment solutions, GHL Systems has successfully established a customer base beyond Malaysia, into Thailand, Philippines, Singapore, the People's Republic of China, Taiwan, Australia, Romania, Holland as well as the Middle East.

BUSINESS SEGMENTS

The group offers a wide range of services as below:

Shared services: Provide support and outsourced sales services which inclusive of EDC terminals supply, outsourced merchant acquisitions, card supply and consulting to banks and merchants.

Solutions Services. Provide value-added services such as managed network solutions, consumer prepaid  card and loyalty products, internet payment processing and so on to banks and merchants.

Transaction Payment Acquisition. Provide non-credit card payment and loyalty services to merchants. This comprises revenue derived from credit card/e-debit transaction payment  services to merchants under the “Affiliation Programmes”.

Source: Kenanga